Sunday, May 5, 2013

CHICAGO, May 5 (Reuters) - Now that the
Illinois House of Representatives has passed a plan to repair a state pension
system underfunded by $100 billion, attention is turning to the meaning of
three words in the Illinois constitution: "diminished or impaired." Those
words cap a clause that is designed to force Illinois to meet obligations to
its retired public sector workers. And the state's labor unions have vowed to
go to court if the bill that passed on Thursday, backed by the powerful
Democratic House Speaker Mike Madigan, becomes law. Reduced cost-of-living increases,
increased employee contributions and other changes violate the constitution,
union leaders say.

Years of skimping on contributions and
the investment-sapping effects of the financial crisis have come to a head in
Illinois, where about one-fifth of the state's general revenue in the next
fiscal year will be owed to its pension plans.

The constitutional issue is far from
simple. Madigan told Reuters on Thursday that he intentionally tailored his
bill to stand up against a constitutional challenge. But others who have
studied it - including a lawyer for another powerful Democrat, Senate President
John Cullerton - say the unions may have a case. The pending legal challenge
has created uncertainty in Illinois, as well as with analysts and investors in
the state's bonds. For some though, the comprehensive approach of Madigan's
plan seems to be offering at least a measure of relief that, after years
without progress, pension reform could come to Illinois, which has the lowest
credit rating among states…

The Madigan measure sets a cap on
salaries used to determine pensions, limits cost-of living adjustments on
pensions for future retirees, increases retirement ages and hikes worker
pension contributions. It introduces cost-saving changes to calculating the
state's annual pension contributions and also exempts pension changes from
collective bargaining.

For the constitutional battle, the most
important part of the bill is an introductory "statement and
findings." The lengthy passage is targeted at the clause in the state's
1970 constitution that describes public employee pensions as "an
enforceable contractual relationship, the benefits of which shall not be
diminished or impaired." Madigan's preamble argues that the state has a
right to amend pension promises when other vital interests are at risk. It
lists numerous fiscal woes facing Illinois as annual payments to its five
pension funds top $6 billion.

"The General Assembly finds that
the fiscal crisis in the state of Illinois jeopardizes the health, safety, and
welfare of the people and compromises the ability to maintain a representative
and orderly government," the bill states. Asked by Reuters if the opening
section was designed to inoculate his bill against constitutional challenge,
Madigan had a simple response: "Yes, it was," he said…

Union representatives say they can win
a lawsuit based strictly on the constitution's pension clause. "By making
unilateral cuts in constitutionally protected benefits, this bill fails to pass
constitutional muster under the Illinois Constitution either under a pension
clause analysis or a contracts clause analysis," said John Stevens, a
partner at law firm Freeborn & Peters, and legal counsel to a coalition of
Illinois labor unions, at the bill's sole House hearing on Wednesday…

The Senate in March passed a bill
sponsored by Cullerton, the Senate president, that addresses constitutional
challenges by giving retirees a choice between cuts in pensions and access to
state-sponsored health care in retirement. And this week Cullerton began
working with unions to fashion a new proposal the unions will not challenge in
court.

Eric M. Madiar, Cullerton's chief legal
counsel and author of a widely respected white paper on legal issues relating
to pension reform, said Cullerton is keeping constitutional review in mind at
every step. "We have decided to take a different approach that appreciates
what the law is and work within the law to frame it rather than have this risky
approach," he said…

Teacher/Poet/Musician

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